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ITA-8(1)(3) R.No. 206, 2nd Floor Aayakar Bhavan M.K. Road Mumbai 400 020 Vs. Dipti Nikhil Modi Unit No. 5, Shah Indl. Estate, Veera Desai Road, Andheri (W) Mumbai 400 058
March, 26th 2015
                  MUMBAI BENCH "D", MUMBAI
                      ITA No. 3767/Mum/2012
                      Assessment Year: 2006-07

          ITA-8(1)(3)                  Dipti Nikhil Modi
          R.No. 206, 2nd Floor         Unit No. 5, Shah Indl.
          Aayakar Bhavan M.K.          Estate, Veera Desai
          Road Mumbai 400 020          Road, Andheri (W)
                                       Mumbai 400 058
                                       PAN:- AABPM 8977 F
               (Appellant)                        (Respondent)

                      Assessee by : Shri J. P. Bairagra
                       Revenue by : Shri Love Kumar

                    Date of hearing   : 17.03.2015
                     Date of Order    : 25.03.2015


       The aforesaid appeal has been filed by the Revenue against order
dated 05.03.2012, passed by Ld. CIT(A)-16, Mumbai in relation to the
penalty proceedings u/s 271(1)(c) for the A.Y. 2006-07. The revenue is
mainly aggrieved by deletion of penalty of Rs.33,99,660/- which was
levied on account of deemed dividend u/s 2(22)(e) of Rs.1,01,00,000/-.

2.     Brief facts of the case are that, assessee is an individual who had
received money from 3 companies, wherein she was major shareholder.
The details of amount received and pattern of her shareholding were as
                                              2                      ITA No. 3767/Mum/2012
                                                                    Assessment Year: 2006-07

Sr. No.     Name of the Company                   Amount Received     % of Shares

1           M/s. Exim Multi Media P. Ltd.         Rs.68,00,000        50

2           M/s. Edge Fine Print P. Ltd.          Rs,9,00,000         13.33

3           M/s. Shipping Times (I) P. Ltd.       Rs.24,00,000        50

            Total                                 Rs.1,01,00,000

In response to the show cause notice by the AO, as to why this amount
should not be taxed as deemed dividend u/s 2(22)(e), the assessee
submitted that these amounts have been received towards deposits for
the premises used by these concerns for their business. The AO further
require to furnish documentary evidences like lease agreements to
justify the claim. However, no further evidences was furnished by the
assessee. Accordingly, he treated the said amount as a loan/advance
given by these companies to the assessee and treated it as deemed
dividend u/s 2(22)(e).

3.        In the first appeal, the Ld. CIT(A) confirmed the said action of the
AO on the ground that all the conditions mentioned u/s 2(22)(e) are
fulfilled and therefore, the provisions of deemed dividend are squarely
applicable. In the second appeal also, the Tribunal has confirmed the
said addition on the ground that the assessee's argument that she has
received deposits in lieu of the premises given to these companies for
their official purpose could not be substantiated. Therefore, order of the
Ld. CIT(A) was up held.
4.        In the penalty proceedings, the assessee submitted that assessee
is the owner of immovable properties which has been let out/ given to
the various companies for their office purpose. In lieu of that she had
                                    3                    ITA No. 3767/Mum/2012
                                                        Assessment Year: 2006-07

received refundable deposits from these 3 concerns in which she was a
shareholder. To substantiate the said claim interenal payment vouchers
issued by the bank was also furnished, which clearly stated that these
were in the form of deposits and not loans. Such a deposit cannot be
treated as loan or advance within the ambit of section 2(22)(e).
However, the assessing officer reiterated the same finding as was given
in the quantum proceedings and held that since this issue has been
confirmed by the Tribunal therefore, penalty is leviable. He also held
that the assessee had not furnished proper particulars of income and
assessee's claim have been held to be incorrect. After referring to catena
of case laws he levied the penalty of Rs.33,99,660/-.

5.   Before the Ld. CIT(A), the assessee gave detail submissions along
with the evidence of bank payment voucher which was issued by the
bank for the deposits received by the assessee. It was also pointed out
that in the quantum proceedings, this primary evidence which
substantiates the assessee's claim was not considered at all. The
assessee has even filed Miscellaneous Application before the Tribunal to
highlight this fact that these evidences were filed and referred before
the Tribunal but has not been dealt upon and therefore, wrong finding
of fact has been arrived. However, the Tribunal has dismissed the
assessee's application on the ground that it is beyond the scope of
section 254(2). It was further submitted that, not every amount received
by the shareholder on account of the business dealing can be treated as
loan or advance within the purview of section 2(22)(e). The security
deposits received by these companies was for the use of the premises
belonging to the assesseee and such a security deposit is nothing but
received during the course of normal business transaction in lieu of
                                    4                     ITA No. 3767/Mum/2012
                                                         Assessment Year: 2006-07

usage of the premises for office and business purpose. In support,
various decisions were also relied upon. Further the assessee's
explanation before the AO in penalty proceedings has not been found to
be false or unsubstantiated. Therefore, no penalty can be levied for
furnishing of inaccurate particulars of income.

6.   The Ld. CIT(A) deleted the penalty after detailed discussion and
considering the entire material placed on record and the explanation
filed by the assessee. He noted that the assessee has given complete
details of refundable deposits for the use of the property given on rent
and assessee also has furnished internal bank vouchers made by these
concerns which clearly stated that the payment was towards deposits
and not any advance or loan. This fact has not been taken into
cognizance either by the CIT(A) or by the Tribunal even though they
were placed before them. He also took note of the fact that these
properties were not let out in the earlier years and only this year the
property was given to these companies. Further the appeal u/s 260A has
been filed before the Hon'ble Bombay High Court against the order of
the Tribunal and the same has been admitted by the Hon'ble High Court
on substantial question of law. The property in questions were
commercial properties which were given to the 3 concerns for their
office purpose. Therefore, any deposits received in lieu is nothing but for
the letting of the properties. After referring to the decision of Hon'ble
Supreme Court in the case of CIT Vs. Reliance Petro Products P. Ltd.
reported in (2010) 322 TTR 158, he deleted the penalty.

7.   Before us, the Ld. DR strongly relied upon the order of the AO and
the finding given in the quantum proceedings and submitted that it
could not be established by the assessee during the course of the
                                     5                    ITA No. 3767/Mum/2012
                                                         Assessment Year: 2006-07

quantum proceedings that the amount received by the assessee from
the three companies was not in the form of loan or advance. Once, the
Tribunal has given a category finding of fact, then penalty has rightly
being levied by the AO.

8.   On the other hand, learned counsel, Shri J. P. Baigara, submitted
that the assessee was the owner of various properties which were given
to the three companies for the usage of their business purpose. The
assessee has not received any rent from these 3 companies. However,
in lieu of letting out the properties, the assessee has received refundable
security deposits from these companies. This is evident from the internal
bank payment vouchers of these companies that they were in the nature
of deposits. This evidence itself goes to show that assessee had not
received any loan or advance as stipulated u/s 2(22)(e). This vital
evidence which was filed before AO as well as before the appellate
authorities has not been considered at all. The assessee's explanation in
this regard has not been rebutted by the department in the penalty
proceedings. Thus, the finding of fact as recorded by the Ld. CIT(A) and
the law relating to levy of penalty u/s 271(1)(c) as discussed by him
should be confirmed.

9.   We have heard the rival submissions, perused the relevant finding
given in the impugned orders as well as material placed on record. It is
an undisputed fact that assessee is major shareholder in M/s. Exim Multi
Media P. Ltd.; M/s. Edge Fine Print P. Ltd. and M/s. Shipping Times (I)
Pvt. Ltd. From these companies, the assessee has received money for
sums aggregating Rs.1,01,00,000/- which has been contended to be in
the form of refundable security deposits for letting the properties owned
by the assessee to these companies for their business purpose. List of
                                    6                    ITA No. 3767/Mum/2012
                                                        Assessment Year: 2006-07

properties owned by the assessee and given for use to these company
were filed before the authorities during the quantum proceedings. Along
with these details, the assessee had also filed internal bank payment
voucher by these companies which show that amount has been given as
"deposit" for the use of the property. These bank vouchers mentions the
cheque number, name of the assessee, the amount of deposits given
and the detail of the property. All these evidences though filed in the
course of the quantum proceedings, have not been taken into
cognizance by any of the appellate authorities. It has been brought to
our notice by the learned counsel that, assessee has not received any
rent from these companies, instead she had received only security
deposits. In light of these facts, it cannot be conclusively held that the
amounts given by these companies are in the form of loan or advance.
This fact is further corroborated by the fact that, neither there is any
entry of loan in the books of the assessee nor in the books of these
companies. How such an amount received by the assessee is considered
in the nature of loan is not borne out from the records. Be it that as may
be, it is well settled proposition of law that the finding given in the
quantum proceedings are quite relevant and have a provative value,
but such a finding alone may not justify the imposition of penalty,
because the considerations that arise in the penalty proceedings are
separate and distinct from those in the assessment proceedings. Even
though matter has been concluded in the quantum assessment
proceedings, then also, they are not conclusive so far as penalty
proceedings are concerned. The matter in the penalty proceedings has
to be examined afresh from the angle whether the assessee is guilty of
concealment of income or furnishing of inaccurate particulars of income.
                                     7                     ITA No. 3767/Mum/2012
                                                          Assessment Year: 2006-07

The assessee may adduce fresh evidence in the penalty proceedings to
establish that the material and relevant facts goes to prove the bona
fide of the claim or take a different plea upon the same existing material
that there is no concealment of income or furnishing of inaccurate
particulars. The degree of proof necessary under the Explanation-1 to
section 271(1)(c) can be discharged by the assessee by pointing out the
factors and the material in his favour, because explanation merely raises
a rebuttal presumption to which assessee can always discharge his onus
by pointing out the factors relating to pre-ponderence of probability.
Here in this case, the assessee's explanation that the money received
from these companies were in the nature of refundable security deposits
received by the assessee in lieu of letting of the properties owned by her
has not been found to be false and in fact has been substantiated by the
evidence in the form of internal bank vouchers and the entries in the
books of account of the assessee as well as of the companies. The
revenue has no material to rebut such an evidence or that the
assessee's explanation is false based on material on record. The
assessee's onus in the penalty proceedings stands fully discharged.
Once, it has been shown that the amount has been received not as loan
but as deposits, the deeming fiction of 2(22)(e) cannot be stretched to
hold that the payment made by a company to a shareholder by way of
deposit in lieu of usage of property for its business purpose is in the
nature of loan. It is a trite law that the deeming fiction has to be strictly
construed and such legal fiction cannot be extended for any kind of
payment by a company to its shareholder. Thus, on the facts and
circumstances of the case, we find that the reasons recorded by the Ld.
CIT(A) for deleting the penalty is legally and factually correct and
                                                 8                           ITA No. 3767/Mum/2012
                                                                            Assessment Year: 2006-07

accordingly the same is affirmed. Thus, the penalty levied by the AO has
rightly been deleted and the ground raised by the Revenue stands

10.    In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on this 25th day of March, 2015.

                 Sd/-                                                            Sd/-
     (B. R. BASKARAN)                                                      (AMIT SHUKLA)
    ACCOUNTANT MEMBER                                                    JUDICIAL MEMBER
 Mumbai, Dated: 25.03.2015
Copy to: The   Appellant
         The   Respondent
         The   CIT, Concerned, Mumbai
         The   CIT(A) Concerned, Mumbai
         The   DR "D" Bench

                                          //True Copy//

                                                              By Order

                                                Dy/Asstt. Registrar, ITAT, Mumbai.
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